“In today’s world, there are many who want government to regulate and control everything. The most bizarre instance, though — more bizarre even than banning the sale of large-sized sugary drinks — is surely central banking.
Why? Well, central banking was created to replace something that was already working well. Banking panics and bank runs happen, and they have always happened as long as there has been banking.
But the old system that the Fed displaced wasn’t really malfunctioning — unlike what the defenders of central banking today would have us believe. Following the Panic of 1907, a group of private bankers led by J.P. Morgan successfully bailed out the system by acting as lender of last resort. The amount of new liquidity disbursed into the system was set not by academics like Ben Bernanke, but by experienced market participants. And because the money was directed from private purses, rather than being created out of thin air, only assets and companies with value were bought up.
The rationale of the supporters of the Federal Reserve Act was that a central banking liquidity mechanism would act as a safeguard against such events, to act as a permanent lender-of-last-resort backed by government fiat. They wanted something bigger and better than a private response.”
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